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Chinese Stocks Take a Dive as Trade Dispute With U.S. Escalates

(Bloomberg) -- Stocks in Hong Kong and mainland China fell as the U.S. outlined its plan to slap tariffs on Chinese imports.

The Shanghai Composite Index fell as much as 4.7 percent before paring its loss to 3.4 percent, while the Shenzhen Composite had its worst day since December 2016, falling 4.5 percent. The Hang Seng Index lost 2.5 percent, with Tencent Holdings Ltd. weighing as it slid in the wake of South African media and investment company Naspers Ltd. selling a 2 percent stake in the Chinese tech giant.

The stocks hardest hit Friday by President Donald Trump’s levies included outsourcer Li & Fung Ltd. and meat processor WH Group Ltd., which both fell as much as 10 percent. Sunny Optical Technology Group Co. lost 5.5 percent and AAC Technologies Holdings Inc. dropped 6.8 percent. Agricultural stocks were among the few gainers as China announced plans for reciprocal tariffs on $3 billion of imports from the U.S., including fruits, nuts and pork.

“Markets will remain volatile while investors watch further developments on trade frictions between China and the U.S.,” said Daniel So, Hong Kong-based strategist with CMB International Securities Ltd. “There are no specifics on taxable goods yet and people would expect dialogue between the two parties to avoid a trade war.”

Analysts including Hanfeng Wang at China International Capital Corp. and Citigroup Inc.’s Oscar Choi suggested that any correction could be a good entry point to the market, as the exposure of Chinese companies to the U.S. is relatively low. But Bocom International Holdings Co. strategist Hao Hong cautioned against being too hasty to “catch falling knives.”

“While the market’s pessimistic reflex may be tempting for some to bottom fish, we note that market visibility in the near term is extremely clouded,” Hong wrote in a note Friday.

Tencent slid as much as 7.8 percent, the most since July 2015, before paring the loss to 4.4 percent. Daily turnover in the stock, which lost 9.7 percent this week, hit a record HK$126 billion ($16 billion) on Friday. Chinese investors offloaded 857 million yuan ($135 million) worth of Hong Kong shares via trading links, the first net sale this month and the biggest since late February, Bloomberg calculations based on daily quota usage show.

Apple suppliers were among the hardest hit on mainland China, with GoerTek Inc. dropping as much as 10 percent and Suzhou Anjie Technology Co. also slumping by the 10 percent daily limit in Shenzhen. The big-cap CSI 300 index lost as much as 4.6 percent, the most since Feb. 9, before paring to close down 2.9 percent.

“If the decline extends further, the ‘national team’ may step in to buy heavyweights like banks to prop up the market,” said Ken Chen, Shanghai-based strategist with KGI Securities Co., referring to state-backed funds.

Investors turned to stocks seen as safe-haven bets. Gold miners were the top gainers on the CSI 300 Index, with Shandong Gold Mining Co. and Zhongjin Gold Corp. jumping more than 5 percent. Domestic pig breeders also advanced -- Guangdong Wens Foodstuffs Group Co. climbed as much as 7.7 percent and Muyuan Foodstuff Co. added 5.5 percent.

Chinese government bonds rallied Friday as investors looked for alternatives to the turbulent equity market. The yield on 10-year sovereign bonds fell two basis points to 3.76 percent, shrugging off Thursday’s decision by the People’s Bank of China to raise borrowing costs following the Federal Reserve’s interest-rate hike. Chinese government bonds are poised to be Asia’s best performers this quarter.

To contact Bloomberg News staff for this story: Amanda Wang in Shanghai at twang234@bloomberg.net.